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COMPETITION COUNCIL IMPOSES FINES UPON INSURANCE COMPANIES

27 12 2010

Having assessed the findings of the completed inquiry the Competition Council passed the Resolution whereby it acknowledged that having concluded the restricting agreement on co-insurance in the compulsory designer‘s and contractor‘s third party liability  insurance market not complying with the requirements of individual either block exemption the insurance companies AB Lietuvos draudimas and UAB DK PZU Lietuva had infringed the relevant requirements of Article 5 of the Law on Competition and Article 101 of the Treaty on the Functioning of the European Union. For these infringements the Competition Council imposed the pecuniary fines upon the companies: AB Lietuvos draudimas – LTL 400,300, UAB DK PZU Lietuva – LTL 130,800.

The inquiry covering the period from 2002 to 2009 examined the insurance services related to construction activities provided by the insurance companies concerned, i.e., the compulsory designer‘s and contractor‘s third party liability insurance. The information collected in the course of the investigation and the circumstances established led to the conclusion that by concluding the co-insurance agreement (i.e., the pool), the entities AB Lietuvos draudimas and UAB DK PZU Lietuva (former UAB DK Lindra) infringed the requirements of competition law applicable to cooperation agreements of the kind between competitors in the insurance market. On 26 February 2003 AB Lietuvos draudimas and UAB DK PZU Lietuva entered into the Framework Agreement under which these two insurers agreed to cooperate in relation to the compulsory designer’s liability co-insurance and surety insurance (tendering and contract surety insurance). On signing the aforementioned Agreement and other arrangements and documents related thereto AB Lietuvos draudimas and UAB DK PZU Lietuva agreed on the terms of concluding insurance contracts and the procedure for calculating insurance premiums, as well as on the minimum premium amount and other conditions of insurance, including the uniform risk assessment and a uniform commission to external brokers.

It should be noted that co-insurance agreements of the kind concluded by AB Lietuvos draudimas and UAB DK PZU Lietuva are not prohibited per se; they, however, are to comply with the stringent established requirements that were not complied with in this particular case.

Such actions of AB Lietuvos draudimas and UAB DK PZU Lietuva restricted competition in the relevant designer‘s and contractor‘s third party liability insurance markets thus infringing the requirements of the Law on Competition.

When assessing the impact upon competition resulting from the agreement concluded between AB Lietuvos draudimas and UAB DK PZU Lietuva, the Competition Council pointed out, as a significant consideration, that the agreement whereby AB Lietuvos draudimas and UAB DK PZU Lietuva agreed not to compete in providing compulsory designer‘s and contractor‘s third party liability insurance services on the basis of the co-insurance agreement was concluded between the two major players in the general third party liability market. The scope of the agreement when assessed with respect to competition in the relevant compulsory designer‘s and contractor‘s third party liability insurance markets was quite significant since the agreement covered significant shares of the compulsory designer‘s and contractor‘s third party liability markets characterised by high level of concentration, and was producing a significant long-term effect upon such markets. On the basis of the above considerations the Competition Council concluded that the co-insurance agreement between AB Lietuvos draudimas and UAB DK PZU Lietuva did restrict competition in the relevant compulsory designer‘s and contractor‘s third party liability markets. Also a thorough consideration of a number of factors related to the nature, execution and implementation of the agreement allows a reasonable conclusion that in the absence of such co-insurance agreement competition in the relevant market would have been much more efficient.

Having assessed other findings of the inquiry the Competition Council decided to propose to the Insurance Supervisory Commission to review the procedure approved by Resolution No. N-30 of 15 February 2005 for the publication of performance data of companies operating in the insurance sector according to insurance groups and individual entities (insurers).

Competition Council Spokesperson